If you employ someone to work for you around your house, it is important to consider the tax implications of this type of arrangement. While many people disregard the need to pay taxes on household employees, they do so at the risk of paying stiff tax penalties down the road. Continue reading
Whether you play the lottery, roll the dice, play cards, or bet on the ponies, all of your gambling winnings are taxable and must be reported on your tax return. If you gamble, these tax tips can help you at tax time next year: Here’s what you need to know about figuring gambling income and loss. Continue reading
In most cases, gains from sales are taxable. But did you know that if you sell your home, you may not have to pay taxes? Here are ten facts to keep in mind if you sell your home this year. Continue reading
If you gave money or property to someone as a gift, you may owe federal gift tax. Many gifts are not subject to the gift tax, but there are exceptions. Here are eight tips you can use to figure out whether your gift is taxable.
1. Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or to a charity. If you make a gift to someone else, the gift tax usually does not apply until the value of the gifts you give that person exceeds the annual exclusion for the year. For 2015, the annual exclusion is $14,000 (same as 2014). Continue reading
- Identity theft. Casually discarded or displayed personal information is an open invitation to criminals. Even when we are vigilant, multiple firewalls and strong passwords can fail to protect us. The Government Accountability Office says fraudsters stole $5.8 billion in false refunds in 2013 and the Treasury Inspector General Tax Administration thinks the losses will hit $21 billion next year. The IRS says it is “making progress” fighting this problem.
1. Stop Procrastinating. Resist the temptation to put off your taxes until the very last minute. It takes time to prepare accurate returns and additional information may be needed from you to complete your tax return.
2. Include All Income. If you had a side job in addition to a regular job, you might have received a Form 1099-MISC. Make sure you include that income when you file your tax return because you may owe additional taxes on it. If you forget to include it you may be liable for penalties and interest on the unreported income.
3. File on Time or Request an Extension. This year’s tax deadline is April 15. If the clock runs out, you can get an automatic six-month extension, bringing the filing date to October 15, 2015. You should keep in mind, however, that filing the extension itself does not give you more time to pay any taxes due. You will still owe interest on any amount not paid by the April deadline, plus a late-payment penalty if you have not paid at least 90 percent of your total tax by that date.
Call the office if you need to file an extension or file for late-filing penalty relief.
4. Don’t Panic If You Can’t Pay. If you can’t immediately pay the taxes you owe, there are several alternatives. You can apply for an IRS installment agreement, suggesting your own monthly payment amount and due date, and getting a reduced late payment penalty rate. You also have various options for charging your balance on a credit card. There is no IRS fee for credit card payments, but processing companies generally charge a convenience fee. Electronic filers with a balance due can file early and authorize the government’s financial agent to take the money directly from their checking or savings account on the April due date, with no fee.
5. Sign and Double Check Your Return. The IRS will not process tax returns that aren’t signed, so make sure that you sign and date your return. You should also double check your social security number, as well as any electronic payment or direct deposit numbers, and finally, make sure that your filing status is correct.
Remember: To avoid delays, get your tax documents to the office as soon as you can.
1. State Sales and Income Taxes
Thanks to last-minute tax extender legislation passed last December, taxpayers filing their 2014 returns can still deduct either state income tax paid or state sales tax paid, whichever is greater.
Here’s how it works. If you bought a big ticket item like a car or boat in 2014, it might be more advantageous to deduct the sales tax, but don’t forget to figure any state income taxes withheld from your paycheck just in case. If you’re self-employed, you can include the state income paid from your estimated payments. In addition, if you owed taxes when filing your 2013 tax return in 2014, you can include the amount when you itemize your state taxes this year on your 2014 return.
2. Child and Dependent Care Tax Credit
Most parents realize that there is a tax credit for daycare when their child is young, but they might not realize that once a child starts school, the same credit can be used for before and after school care, as well as day camps during school vacations. This child and dependent care tax credit can also be taken by anyone who pays a home health aide to care for a spouse or other dependent–such as an elderly parent–who is physically or mentally unable to care for him or herself. The credit is worth a maximum of $1,050 or 35 percent of $3,000 of eligible expenses per dependent.
3. Job Search Expenses
Job search expenses are 100 percent deductible, whether you are gainfully employed or not currently working–as long as you are looking for a position in your current profession. Expenses include fees paid to join professional organizations, as well as employment placement agencies that you used during your job search. Travel to interviews is also deductible (as long as it was not paid by your prospective employer) as is paper, envelopes, and costs associated with resumes or portfolios. The catch is that you can only deduct expenses greater than 2 percent of your adjusted gross income (AGI). Also, you cannot deduct job search expenses if you are looking for a job for the first time.
4. Student Loan Interest Paid by Parents
Typically, a taxpayer is only able to deduct interest on mortgage and student loans if he or she is liable for the debt; however, if a parent pays back their child’s student loans that money is treated by the IRS as if the child paid it. As long as the child is not claimed as a dependent, he or she can deduct up to $2,500 in student loan interest paid by the parent. The deduction can be claimed even if the child does not itemize.
5. Medical Expenses
Most people know that medical expenses are deductible as long as they are more than 10 percent of Adjusted Gross Income (AGI) for tax year 2014. What they often don’t realize is what medical expenses can be deducted, such as medical miles (23.5 cents per mile) driven to and from appointments and travel (airline fares or hotel rooms) for out of town medical treatment.
Other deductible medical expenses that taxpayers might not be aware of include health insurance premiums, prescription drugs, co-pays, and dental premiums and treatment. Long-term care insurance (deductible dollar amounts vary depending on age) is also deductible, as are prescription glasses and contacts, counseling, therapy, hearing aids and batteries, dentures, oxygen, walkers, and wheelchairs.
If you’re self-employed, you may be able to deduct medical, dental, or long term care insurance. Even better, you can deduct 100 percent of the premium. In addition, if you pay health insurance premiums for an adult child under age 27, you may be able to deduct those premiums as well.
6. Bad Debt
If you’ve ever loaned money to a friend, but were never repaid, you may qualify for a non-business bad debt tax deduction of up to $3,000 per year. To qualify however, the debt must be totally worthless, in that there is no reasonable expectation of payment.
Non-business bad debt is deducted as a short-term capital loss, subject to the capital loss limitations. You may take the deduction only in the year the debt becomes worthless. You do not have to wait until a debt is due to determine whether it is worthless. Any amount you are not able to deduct can be carried forward to reduce future tax liability.
Are you getting all of the tax credits and deductions that you are entitled to? Maybe you are…but maybe you’re not. Why take a chance? Call the office today and make sure you get all of the tax breaks you deserve.
Starting with this year’s filing season, taxpayers must report certain information related to health care coverage on their 2014 tax return when they file this April. In addition, taxpayers must provide proof of health insurance coverage or that they have received an exemption.
With that in mind, let’s take a look at how the Affordable Care Act might affect your tax situation, and based on your type of coverage, which new tax forms you might be receiving. Continue reading
As published 1/19/15 at Cleveland tax attorney Robert J. Fedor’s Blog:
It’s no secret that the Internal Revenue Service isn’t exactly known for providing a high level of service to taxpayers who are in need of assistance. Annually the agency receives an estimated 115 million calls, letters and in-person visits at walk-in sites. The high volume of public inquiries is no doubt due to the complex and confusing nature of U.S. tax code and the ever-changing tax rules and regulations imposed by the IRS.
By far, the IRS receives the most inquiries from and has the most contact with members of the public than any other federal agency. Yet a recent report by National Taxpayer Advocate Nina E. Olson provides a candid review of the agency’s many shortcomings when it comes to providing tax assistance and services to U.S. taxpayers and winning their respect and trust.
In recent years, the agency has been the subject of much debate and contempt from not only the U.S. public, but also members of Congress. Feelings of mistrust among conservative politicians only grew and intensified after the IRS admitted it “subjected Tea Party-affiliated groups to additional scrutiny based solely on the name and stated goals of the organization.”
In response, the agency was hit with deep budget cuts which has led to layoffs and reduced spending on employee training. These considerable reductions in workforce, services and training comes at a time when the IRS is receiving and processing a record number of tax returns and inquiries from confused, frustrated and increasingly cynical taxpayers.
In an effort to restore public confidence in the IRS, Olson calls upon members of Congress to work with the IRS to “ensure that taxpayer needs are met.” This includes increasing the agency’s budget so additional employees can be hired and trained to provide the answers and assistance taxpayers desperately need in order to remain tax-compliant.
Time to Hire a Tax Professional
With little to no support from the IRS, this is the year to hire a tax professional for tax advice and income tax preparation if you have not done so already. Call Lahrmer & Company at (866) 474-1238 or email us today.